State Rundown 5/25: The North Star State Leads the Way on Tax Fairness

As we approach the midpoint of 2023, it’s a good time to look back at the progress states have made in the name of tax fairness and equity. Ten states have taken steps to enact or improve refundable credits, with Minnesota joining the list this week (pending the governor’s signature). The North Star State’s legislature adjourned after approving a bill that would raise taxes on wealthy earners and corporations, create a new Child Tax Credit, make changes to the state’s version of the Earned Income Tax Credit and expand credits to immigrant filers, index the state’s gas tax to inflation, and create a payroll tax-funded statewide Paid Family Medical Leave program. And while Minnesota has explicitly acknowledged that multinational corporations are using foreign tax havens and are seeking to ensure they pay their fair share, Montana has taken the opposite strategy, as the governor signed into law a bill that will, for corporate income tax and apportionment purposes, eliminate the list of countries considered tax havens.

Major State Tax Proposals and Developments

• The MINNESOTA legislature adjourned after passing a $3 billion tax bill. The bill, signed by the governor, raises new revenue from the highest-income earners and corporations through a global intangible low-taxed income (GILTI) tax, makes changes to the state’s standard and itemized deductions phaseout, and includes a 1 percent tax on higher-earner investment income. The bill includes a new Child Tax Credit of $1,750 per child that begins to phase out after $35,000 of income for married households. The policy is expected to reduce the state’s child poverty rate by one-third. The bill also restructures the state’s Working Family Credit (EITC) and expands it to ITIN filers, expands the renter’s income tax credit, provides one-time rebates of $260 for single filers and $520 for married filers with additional funds for up to three dependents and expands the Social Security subtraction. Additional bills will index the state’s gas tax to inflation and create Minnesota’s first Paid Family Medical Leave program funded through a new payroll tax. – NEVA BUTKUS
• The NEBRASKA legislature passed LB753, a substantial overhaul of the state’s tax treatment of private education. The bill—which the governor has pledged to sign—creates a tax credit for those who donate to scholarships intended for private and parochial schools. Although initially capped at $25 million annually, the credit is permitted to rise to up to $100 million each year. Additionally, the bill permits taxpayers to designate up to half of their income tax liability (up to $100,000) to private school scholarships. – ELI BYERLY-DUKE
• The governor of MONTANA recently signed into law a bill that will eliminate the list of countries that are considered tax havens from statutes governing the “water’s-edge” corporate filing method. Under current law, C corporations have the option of electing the “water’s-edge” filing method—which allows them to exclude income from outside the United States for income apportionment purposes—except for income earned in countries deemed tax havens. – MARCO GUZMAN

State Roundup

• ALABAMA House members are expected to consider a bill to reduce the sales tax on groceries from 4 to 2 percent this Thursday. The bill has already received unanimous support in the Senate and has been endorsed by 100 of 105 members of the House.
• The NEBRASKA legislature passed LB727, an omnibus grab-bag of sales and property tax breaks mostly targeting corporations and various special interests that will cost about $50 million over the next 4 years. The package was substantially trimmed back and is somewhat offset by the addition of the state’s first ever sales tax on vaping products, estimated to bring in about $12 million over 4 years.
• The President of the NEW JERSEY Senate is considering extending the Corporate Business Tax (CBT) surcharge, which is set to expire at the end of the year. The move would put the senator at odds with Gov. Phil Murphy, who has expressed his desire to see the surcharge expire. The 2.5 percent surcharge, which applies to the wealthiest corporations in the state, raises roughly $1 billion annually and has helped the state fund vital education and infrastructure programs since it was enacted in 2018.
• In NORTH CAROLINA, Gov. Roy Cooper declared a state of emergency for public education due to the ongoing support for cuts to personal income taxes – that will ultimately reduce revenue for public investment in schools – and calls for expansion of private school vouchers that are available to families, including millionaires.
• Lawmakers in OKLAHOMA have reached an initial agreement on the state’s budget. Despite calls from the governor, it does not include any grocery, corporate, or personal income tax cuts. It does, however, eliminate the state’s franchise tax in future years and includes a tax credit for people who care for a family member. The budget appropriates $13 billion and has already passed the House and Senate Joint Committees on Appropriations. Lawmakers have indicated they want to finish work by Friday and will come back to the Capitol in June if the governor vetoes any of the bills adopted this week.
• SOUTH DAKOTA Gov. Kristi Noem said she would not support a measure that would exempt groceries from the state’s sales tax due to provisions that would also prevent the state from taxing tobacco and medical marijuana. The measure is currently seeking signatures to be placed on the 2024 election ballot. Exempting groceries from the sales tax was a key priority for Noem during the 2023 legislative session, but the effort ultimately failed.
• The TEXAS House passed a bill to remove taxes on menstrual products. It now goes to the Senate, where it is expected to pass. The governor has already voiced his approval of the bill.

 

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